Blues boss Carlo Ancelotti is a huge admirer of Italy midfielder Pirlo, 30, who led his country to glory at the 2006 World Cup.

But the purse strings have been tightened at Stamford Bridge as owner Roman Abramovich bids to make the club more self-sufficient. That means Chelsea have been unable to splash big money on the one marquee signing Ancelotti wants.

But reports in Italy suggest mega money may not be needed to snatch Pirlo, because Milan are open to the idea of a player exchange.

Pizarro, 30, still has two years left on his contract but is surplus to requirements despite impressing on loan at Werder Bremen last season.

And Milan see him as a cut-price option to bolster their forward line after missing out on Wolfsburg’s Edin Dzeko and Luis Fabiano, of Seville.

The Italians are also looking for a full-back, and Chelsea are willing to loan them England Under-21 star Mancienne as part of the deal.

His first-team chances look limited this season and Chelsea want him to gain more experience elsewhere after spells at QPR and Wolves.

Ancelotti wants more creativity in the Blues midfield and Pirlo fits the bill perfectly after redefining the role of playmaker at Milan.

Meanwhile, injured Joe Cole looks set to face a tough battle forcing his way back into the team following the arrival of Yuri Zhirkov and Florent Malouda’s vastly-improved form.

England star Cole is in the latter stages of recovering from knee surgery. Ancelotti has confirmed he wants to play a diamond formation in midfield, with Frank Lampard at the head and John Obi Mikel or Michael Essien in the holding role.

And the Italian has given a clear indication that £18m arrival from CSKA Moscow Zhirkov and Malouda are his preferred picks for the wide positions.

Ancelotti said: “For his first game Zhirkov played a very good game. He likes to play left-back, but I want to try him in midfield because he has a dynamic run, is very technical and has a good cross.

“I want to try him near the strikers because he can press and put in very good crosses for them.”